Dialog Group a "buy”

PETALING JAYA: AmInvestment Bank Bhd has reiterated its "buy" recommendation on Dialog Group Bhd with a higher sum-of-parts-based (SOP) fair value of RM2.45 per share, from RM2.24 per share previously.

The stock closed unchanged at RM2 with 7.7 million shares traded. Its market capitalisation stood at RM11.3 billion. Year-to-date the stock price has gained more than 29%.

In a report last Thursday, its analyst Alex Goh said Dialog currently trades at a CY18F price-earnings (PE) of 28 times, below its five-year average of 46 times.

Goh said the research house views the premium valuation as justified, given Dialog's sustainable recurring cash flow-generating businesses, which are largely cushioned from volatile crude oil price cycles, and further underpinned by the Pengerang development's multi-year value expansion.

Goh said the higher valuation was also driven by the assumptions for an additional one million cubic metres (m3) of storage for Dialog's 45.9% stake in Pengerang Deepwater Terminal (PDT) Phase 1.

Last August, Dialog's partner Vopak announced that Phase 1 will be progressively expanded from Q1 2019 by 430,000 m 3 for clean petroleum products, raising its total capacity by 33% to 1.7 million m3 .

Assuming that Phase 3, which Dialog is still in the process of negotiating with off-takers, Goh said it will have the same storage capacity and equity stakes as Phase 2's 2.1 million m3.

"Raising the valuation of Pengerang land from RM30 per sq ft to RM50 per sq ft for Dialog's estimated stake of 65% in the larger 650-acre industrial and buffer zone. Note that property agents' asking price for industrial land in adjacent Sg Rengit in Pengerang has reached over RM100 per sq ft currently."

AmInvestment Bank had also raised Dialog's FY18-FY20 earnings by 5%-8%, incorporating higher contributions from Pengerang Phase 1, and computed an increase of RM100 million for the group's FY18F-FY20F engineering, procurement and construction order book assumption.

Goh said the RM5.5 billion contract for the construction of the RM6.3 billion PDT Phase 2 currently occupies Dialog's fabrication, engineering and construction division, and underpins the group's earnings over the next two years.

He said the progress of PDT Phase 2 is on track as the Rapid complex remains on schedule with progressive completion in 2018- 2019.

Additionally, Goh said the RM2.7 billion liquefied natural gas (LNG) regasification plant and storage tanks, in which Dialog has a 25% equity stake, are scheduled for progressive completion starting in Q4 2017 to Q2 2018.

He further noted that the overall Pengerang development undergirds Dialog's long term growth prospects, as the group is currently securing new potential partners for Phase 3 and future phases, which will be part of an additional 890-acre zone comprising further reclaimable land and the adjoining buffer zone.

"This caters to additional petrochemical, storage and support facilities which will be needed to support Petronas' nearby Rapid project."

Currently 440 acres, which account for 65% of the reclaimable land area of 680 acres, has been developed.